Will China stay the course to cleanse its corruption-ridden financial system?

Andy Xie says with regulators making serious moves to rein in excesses, Beijing must also recalibrate its policy and bring monetary growth in line with economic growth, even at the risk of recession, because financial health is vital. The central government is tightening risk control in the banking system and launching a broad-based anti-corruption campaign in the financial system. This is the first major attempt to reverse the trend of China’s economy turning into a financial Ponzi scheme since 2003.

The creation of high-risk credit has come to a screeching halt. But, as economic slowdown is sure to follow, would China bite the bullet and follow through with the necessary cleansing and reform of the country’s financial system? China’s economy has been in stop-and-go mode since 2012, when renminbi appreciation ­expectations reversed and financial speculation was a one-way street no longer. Every short-lived upturn was driven by high-risk credit-fuelled speculation. The current ­upturn, which began in the middle of last year, is no exception…